This calculator helps you decide how much of the net college costs
(e.g., the family contribution) should be paid from income and assets
(or a short-term payment plan), and how much you should borrow through
education loans to help pay the bill.

Clearly, you could always borrow the full amount using the PLUS loan
or private student loans. But it is always better to minimize your
debt, and pay as much as possible from current income along the way.
Keep in mind that even if you can afford the loan's monthly payments
(assuming that the interest isn't subsidized or capitalized and the
repayment obligation isn't deferred) for the first year's loans, you
need to preserve the ability to borrow more money during subsequent
years.

If your uncommitted cash flow or available assets exceeds the
college bills, you can avoid borrowing. But this is rarely the
case. Plus, even if you can afford to pay the bill in full, you may
want to borrow a little to preserve some funds for contingencies.

For most families, the amount borrowed will fall between these two
extremes. A good rule of thumb is to borrow about 125% of the
difference between your net college costs and the amount of income and
savings you can devote to paying those costs, rounded up to the
nearest $1,000.

For example, if college costs are $10,000 and you have only $6,000
available to pay those costs, this rule of thumb would suggest
borrowing $5,000, leaving $1,000 to cover loan payments. (If you wanted
to allow an extra buffer for contingencies, you'd subtract the
contingency funds from the uncommitted cash flow before applying the
rule of thumb.)
Since the loan payments total $744 a year (at 8.5% interest on a
ten-year loan), during the next year you'd have about $5,250 available
to pay for college costs. You'd then borrow $6,000, leaving $1,250
available to cover the loan payments of $893 a year on the new loan.

This calculator generates a more precise
recommendation that is customized to your situation. It rounds up the
loan amount a little to provide a bit of extra cash flow for
unexpected situations, and also takes into account the impact of loan
fees on net disbursements.